Unfiltered Brewing defeated at Nova Scotia Court of Appeal

On February 13, 2019 the Nova Scotia Court of Appeal released its reasons in Unfiltered Brewing Incorporated v. Nova Scotia Liquor Corporation. Those reasons can be read in full here. The appeal was dismissed, with costs ordered payable by Unfiltered Brewing to the Attorney General of Nova Scotia. The trial judge’s reasons are summarized here.

In each of these cases a brewery (Unfiltered Brewing) a distiller (the now defunct Toronto Distillery) and a restaurant (The Poacher) challenged their respective provincial regulators in court over what they perceived to be unreasonable or unlawful treatment around liquor markups. At risk of oversimplification, the theme in each complaint was that the monopolies that the provinces of Ontario and Nova Scotia maintain over the wholesaling of alcohol are not fair, are not sufficiently supported by legislation, and are largely supported by “policies” that are not accountable or publicly accessible. Grave allegations indeed.

The Trilogy, which now includes two appellate level decisions, are decided along similar lines: the courts have concluded that the provinces are entitled to maintain a monopoly over liquor sales, and that the broad language of the respective Liquor Acts provide for liquor boards to treat alcohol as their commercial property and apply a “proprietary charge” to the same – regardless of what role they play in retailing it or warehousing it.

A similar, but successful argument was made by Steam Whistle Brewing in its lawsuit against the Alberta Gaming Commission. Significantly, that case turned on the Comeau doctrine which operates to prevent barriers to inter provincial trade. A summary of that lawsuit can be found here.

Yes – there is an awful lot of liquor related litigation going on in Canada.

Court of Appeal Analysis

After reviewing the relevant sections of the Liquor Control Act, the Regulations and NSLC policy, the Court in Unfiltered Brewing summarized the following principles:

the sale and distribution of liquor in the province can only be done through the NSLC;

the NSLC has the sole discretion to determine the manner in which liquor is sold and distributed in Nova Scotia;

the NSLC has determined that any liquor sold by a microbrewery such as Unfiltered shall be deemed to be purchased by Unfiltered from it;

the NSLC has the ability to set the prices for the sale of liquor at a microbrewery and the sale price can include a mark-up;

the only way that a microbrewery can operate to manufacture and sell liquor is through permits issued by the NSLC; and

as a condition of receiving a permit, the microbrewery has to agree to comply with the terms and conditions of the permit which include complying with the Act, the Regulations and NSLC policies.

This was the relevant backdrop against which the trial judge determined that the mark-up on beer sold at Unfiltered’s premises was a valid proprietary charge.

Justice Farrar concluded that Nova Scotia, like the other provinces, is entitled to enact schemes to manage the supply and demand for liquor within its borders. While certain components of the scheme involve licences and permits – and that Unfiltered was required to adhere to those quasi-contractual documents if it wished to manufacture and sell beer – that is not sufficient to undermine their legitimacy.

Looking to the Future

What the Trilogy makes clear is that while the manufactures and retailers of liquor in Canada may not agree with how their respective provincial regulators tax and restrict their activities – that does not make these administrative decisions unlawful. If substantive changes (progress?) in the way alcohol is going to be manufactured, taxed, and sold in Canada are going to be made, they are going to be made by politicians, not judges. This is not necessarily a bad thing.

Mr. Matthew Boswell, Interim Commissioner of the Competition Bureau, recently penned an open letter to the Attorney General of British Columbia, the Honourable David Eby, Q.C. wherein he encouraged Mr. Eby to “consider the principles of competition” in forthcoming changes to British Columbia’s liquor laws. That letter can be read here.

One of Mr. Boswell’s concerns is the current restriction in British Columbia that prevents hospitality licensees from buying their liquor products from private liquor retailers. The effect of this restriction is that businesses in the hospitality sector are limited to purchasing products from government-owned stores. This policy restricts competition at the distribution level, because private retailers are unable to compete with government-owned stores. It also restricts competition at the retail level, because bars, restaurants and hotels are unable to set themselves apart from their competitors by offering unique products sold only by private retailers.

Will British Columbia rise to meet Mr. Boswell’s challenge? Will provincial regulators in Ontario and Nova Scotia respond substantively to the concerns raised by the litigants in the Trilogy? Stay tuned to Alcohol & Advocacy to find out.

*Alcohol & Advocacy publishes articles for information purposes only. They are not a substitute for legal advice, and persons requiring such advice should consult legal counsel.

Alcohol & Advocacy is a blog intended to provide general information and commentary for those working in the brewing and hospitality industry. Although we make our best efforts to ensure the information found on our website is accurate, we cannot guarantee it. Nothing on this website should be considered legal advice. Do not under any circumstances rely on information published on this website in place of seeking legal counsel. If you or your business require legal advice Daniel H. Coles or the lawyers at Owen Bird Law Corporation would be pleased to provide such advice.